Tuesday, October 2, 2018

Update of post "Trump Notes, November 2016"

This post will try to make a memory and evaluation of my post 'Trump Notes' published on November 14th, 2016, just after Trump's victory in the US elections. How were the analysts with their 2016 predictions about various commodities, currencies and markets today, almost two years from that date? I think it's an interesting exercise. Inflation, Steel, Technology, US Dollar, British Pound, Emerging Markets, China, Crude Oil, all of them update at a glance.After each item, and in italics, I include a today and brief Update about what is written in each one. Take into account that the charts shown are those of that date of 2016, I did not update them.--------------------------------------------------------------------------------------------------------------

1. Inflation

The week on Wall Street will continue to be marked by the news that comes from Trump and his environment, his first political-economic statements, the names of his next work team and the compliance or not of his campaign proposals (the global ones, which are the unique that we are interested as traders). There are sectors and commodities that are benefiting from the lack of definition of these days, which should be followed to take advantage of this speculative 'Rally Trump' as it is being called.There is a strong feeling that inflation will rise (and strong) with Trump. If go the reconstruction of the country that Trump advocates, with heavy spending and domestic consumption, it is expected that inflation will rise and the Fed (which will be the destination of Yellen?) will not be so much trouble in raising the interest rate regularly. The reflection today is in the indices that measure the performance of the US treasury bonds, TYX (bonds) and TNX (notes), closely linked to inflation, which since the post-election Wednesday, are rising, while the etf that follows bonds price TLT comes strong downward. For higher risk-reward, follow the triple-rate etf TMV, which follows in bear mode the 20-year treasury bond.Historically the stock market does not bother inflation while it is below 5%, ie there is ample space, according to this article by the renowned trader Eddy Elfenbein.

although it entered into overbought territory. I expect a slight pullback to enter long there.

Update October 2018:It was expected and happened like that: strong growth that brought inflation and success Rate Hikes to be above it. And also as a result, the 10-year TNX treasury bonds is already breaking resistance for 7 years, now at 3.25% becoming the main factor today to forecast the future of the main indices of Wall Street. About Yellen, yes we missing her, because every time Powell gives his speech, Wall Street rumbles and falls.--------------------------------------------------------------------------------------------------------------

2. Steel

The promised spending of infrastructure can lead this market to a demand that was not seen since the crisis of 2008. Although details of it are missing, this subsector can benefit like few others, and Morgan Stanley already saw it today. the target of US Steel Corp X from $ 19 to $ 46 and AK Steel Holding AKS from $ 5 to $ 11, today both up 7%. Two stocks to invest in the long term, with relative safety of success.

The companies in the steel sector have a long way to recover from the crisis of 2008. More than to make swing trading, they are for invest in the long term.

Update October 2018:Already commented in the post "Stocks to Watch: AKS", finally what characterized this industry was its explosive growth in the first months after the elections, to then correct and be dependent on the Trade War and tariffs. In spite of everything, a good 2019 is expected for steel.---------------------------------------------------------------------------------------------------------------

3. Technology

This sector expected a Hillary victory, because it is known that Trump does not sympathize much with its business model, in addition to not interested in related topics such as climate change ('Chinese invention to slow down American industry') or renewable energy. He also argues that China manipulates its currency to favor its exports, an issue that directly affects the giants of the FANG sector such as Google GOOG (-8% these days), Apple AAPL (-8%) or Netflix NFLX (-10%) that operate on a large scale with the Chinese market. Therefore the index that groups them, the Nasdaq, has suffered like no other, the same as the XLK technology sector. We will see how Trump's handling of trade agreements and a probable strengthening of the dollar impact on this sector. Other sub-sectors such as cybersecurity, internet and even space exploration take on relevance because Trump and his environment are still not clearly known about it. We will see how the powerful Silicon Valley reacts, obviously they will not stay with their arms crossed ... there is an attractive duel of power there. There must be a rebound soon, and then, with the low VIX volatility, put some options (puts) in this sector always depending on the news that comes out of the Trump environment.

The technologies fighting today against the SMA100 average. In oversold field indicates probable bounce.

Update October 2018: It is verified that, finally, the technologies did not interest if Hillary won: his growth was unstoppable until today, with small corrections. Practically, it is the sector that pulls the entire market with it. There is talk of growth without sustenance, protectionism, excessive buy-back of shares, bubble. The fact is that XLK continues as the fastest growing sector in the Trump era.

4. Dollar

Comes very strong against all world currencies, reaching maximum levels since 2003. All this due to the affluent post-Trump environment plus the latest statements by Fischer, the 2nd of the FED, which almost discounted the Rate Hike in December and probably more regularly in the future. This will make money flow to the banks that will offer better rates since 2008, something that will make the savers reappear. Follow the future /DX, which is approaching its maximum in 14 years, or the bullish ETF UUP, although this is less volatile, which makes it 'boring'. The option to go against the dollar is gold /GC. A strong dollar tends to damage the demand for gold, since the metal has its price in the currency of the United States and becomes more expensive for foreign investors when the dollar rises.Update October 2018: Irregular behavior of the dollar. All 2017 it remained under great pressure, as it was expressed Trump's intention to keep it weak in the short term as a government strategy, to favor exports and weaken imports. Totally different this 2018 with the /DX strengthening towards the long term with the beginning of the Trade War and the tax reform, as was the initial express wish of Mnuchin. Definitely successful Trump's strategy with the dollar, complicating all its global peers and emerging markets.

5. British Pound

The "sterling" has been reinforced since days before the elections, while the companies of the FTSE100 index that report in dollars (stronger than the pound today) are coming down. The Trump's victory reinforced this rise, in the idea that a wave of populism and uncertainty in Europe can benefit the UK post-Brexit, in addition to a probable commercial treaty with the USA. Keep in mind that the European Union is recognizing the fall of the TTIP Transatlantic Trade and Investment Alliance acclaimed by Obama after Trump's election. If you review previous posts you will see that the etf of the FXB sterling is one of my favorites for these next months, with a lot of potential ahead.

Ample road to go awaits the pound to recover levels of 10 years ago. It is reinforced and the evolution of Brexit will be decisive.

Update October 2018:Its behavior was opposite to the dollar: a very good 2017 and a weak 2018, by the influence of the North American currency. On the domestic front, the strong divisions in the English government continue: on the one hand the conservatives, adherents to the hard Brexit, as well as having an economic cost, and the liberals who want to maintain the maximum relations with Europe. In between, Theresa May dealing with both and at the same time negotiating a favorable pact with the EU, which if not given could mean a collapse for the pound. Uncertain panorama today.------------------------------------------------------------------------------------------------------------

6. Emerging Markets

Complicated panorama consequence of the intention of Trump to review the free trade agreements in force and apply tariffs to certain imports, just in moments that the dollar /DX is rising and could help these exporting economies. These markets hope to increase US domestic consumption, and in this inflationary environment, the demand for commodities will increase and with it the improvement for them. For two days the etf that follows them, EEM, is in strong decline, -2% at this moment, breaking the important level SMA200 and oversold. As seen in the chart, can bounce depending on the news.

The direction that the various sectors of the NYSE will take will depend on Trump's announcements.

Update October 2018:From be one of the best markets in 2017, this year comes complicated by the rise of the dollar and Trade War, as analyzed in a recent post. Some emerging countries are coming into crisis, others suffering their stock exchanges, in this evil 2018, which seems the beginning of a crisis. The panorama is still uncertain, next political and macroeconomic decisions will be decisive.--------------------------------------------------------------------------------------------------------------

7. China

Its Shanghai Composite index fall slightly with the news, but has already recovered, remaining in the 3,000 lateral range as almost all year, in oversold territory, low volatility, and index with upward projection. Its economy continues buoyant, not at 2012 levels, but even with its industrial production at 6%, full employment and ideal inflation at 2%. Trump has been very energetic in relation to his trade with China, even declaring that he plans to impose a rate of up to 45% on his imports of goods. The effect on internet giants like Alibaba BABA or Baidu BIDU could be devastating. To expect definitions here, already in the presidential chair things should be seen differently, I suppose ...

After falling last year from the 5,000 level, the SSE keeps hovering around 3,000 without taking off yet.

Update October 2018: The Chinese stock market remains in the same range commented there, which has been more than 2 years. China is the main protagonist of the Trade War, Trump continues to point its weapons (25% tariffs) against them, that respond with the same caliber. A war that has no winners and many losers, and yet there are in permanent dispute since early 2018. A risky move by the Chinese was to intentionally back the yuan (10% over the dollar), which allows its exporters to have a weak currency and thus compensate for the loss of competitiveness due to the application of Trade War tariffs. And by the way, it hurts US exports to his country. Crazy...

8. Crude Oil /CL

It remains outside the electoral issue, it continues in its free fall since it was learned that, probably, at the next meeting of OPEC no agreement will be reached on output cut, because even this is increasing, as the EIA revealed yesterday. On the other hand, there is a Trump's plan to reactivate the oil reserves of his country valued at $ 50B. The future /CL is trading at $ 43.4, with all November in oversold territory. This commodity only need to wait for OPEC decisions to stop their price drop, and see if Trump applies its internal reactivation plan.

The Crude's ichimoku shows it from today under the cloud, a clear bear signal that would only recover depending on OPEC. Mc Clellan indicator below confirms the same trend.

Update October 2018:

Great protagonist of the markets, to reach minimum of $ 26 at the beginning of 2016, today around $ 70 and several analysts say that its rise is not over yet. Many factors determined it, the main one being OPEC production cuts agreements that created deficits and boosted demand. On the opposite side are the US economic sanctions against Iran, because Trump wants a low cost for /CL. Today, with the dollar, they are the main engines of growth and inflation in the US economy.